Zenefits, the human resources software company he founded barely two years ago, raised $500 million in private funding at a $4.5 billion valuation, a once-inconceivable amount that would make it one of the fastest-growing companies in history — at least by valuation.

Yet, he has a sense of “paranoia” about the worst case scenario of his company taking a turn for the worse that never seems to go away completely. “I don’t think it ever will,” Conrad told Mashable last Wednesday, a few hours after the blockbuster funding round was announced.

It’s a feeling he’s had ever since the dark days of 2008 and 2009 when the economy plunged into a recession and nearly took down his previous company, Wikinvest, with it. His investors, like most venture capitalists at the time, abruptly stopped the IV drip of funding and told Conrad and his cofounder to talk to “every VC” to find money elsewhere. Predictably, one investor after another turned them down.

"That was an enormous disaster," Conrad says, reflecting on his entire experience with a company that all but failed. “People sometimes ask me, ‘What did you learn from your last company?’ And the answer I always have is: I learned basically absolutely nothing, except one thing which is that failure really, really, really sucks and you never want it to happen again. That informs a lot of my decision making.”

With a half-billion dollars in financing, soaring revenue and more press than most software startups can dream of, Conrad and Zenefits are far from failure today.

However, like many founders and investors we’ve spoken with in recent months, Conrad is aware of growing chatter that the overall market is long overdue for a correction. "I worry about it, but it's not something I can control," he says. Instead, he is moving full steam ahead: raising large sums with no plans to hoard that cash for an eventual crash.

The potential for a shift in the market is a topic of conversation in boardrooms, investor meetings and the vast open offices of tech companies, and for good reason: the amount of planning now may determine which companies thrive and which die if access to venture capital dries up.

The end of easy money

Last week alone there were announcements that Banjo raised $100 million, Affirm received $250 million and, of course, Zenefits got its $500 million.

Even five years ago, many of these startups would only have had access to that tremendous amount of capital by going through the public markets. No longer.

Some of this flood of money is due to mutual funds and hedge funds like Fidelity, T. Rowe Price and Tiger Global Management, which are investing larger and larger sums in flashy tech companies with the hope of getting a better return than would be had if they invested after a public offering. That trend has been exaggerated by record low interest rates and a frothy stock market that keeps hitting new highs. The omnipresent availability of cash creates a cycle where startups look to stand out with ever-higher valuations to help gain press, partnerships and potential employees who are accustomed to fat paychecks and magical perks from other well-funded startups.

"I think that Silicon Valley as a whole or that the venture-capital community or startup community is taking on an excessive amount of risk right now. Unprecedented since '99," Bill Gurley, a prominent VC with Benchmark, said in one interview late last year. "No one's fearful, everyone's greedy, and it will eventually end."

The entrepreneurs most likely to be fearful of what's coming are those who have gone through it before — founders like Conrad and Stewart Butterfield, the CEO of Slack, a workplace collaboration service valued at $2.8 billion.

Butterfield was born in the 70s era of stagflation, graduated into the recession of the early 1990s, survived the dot com bust of the early 2000s and lost a bunch of money in the recession of 2008. In short, he's been around.

"We have young employees who have only been in the field for like 3-5 years. They’ve never lived in any era other than salaries go up 20% every single year and everything is crazy and everyone is competing to hire you with insane perks," Butterfield says. "They don’t quite get that this is not the normal environment. It's one of those things I don’t think you can learn except from experience."

Parker Conrad, CEO and cofounder of Zenefits

Image: Zenefits

Mo money, fewer problems

After launching Slack in 2013, Butterfield had a key insight: It has never been easier for a company to raise cash than it is now. So why not just stockpile cash for a time when the market climate makes it harder to raise?

"It's a historically unprecedented situation that we are in now. We have decades and decades of runway," Butterfield says. Slack has raised $340 million in funding since launching less than two years ago — and it has used almost none of it. Literally we will be in 2056 before we run out of money."

Having money in the bank won't entirely prevent the fallout from the economy going south: some of Slack's many startup customers might dry up and employee morale could dip. But according to Butterfield and others, all that cash will go even further in a market downturn when potential acquisitions and talent get cheaper.

"If the market adjusts, we’ll be more open to hiring people who are back on the market at reasonable prices," says Eric Setton, cofounder and CTO of Tango, a mobile messaging startup with more than $350 million in funding. "Assets will be cheaper. Companies will be running out of money when the market tightens. So that leads to opportunity."

Not all companies are able or willing to hoard cash.

"Having that much cash on hand can make you sloppy. I like having a little bit of pressure — a little bit of pressure is good for creativity. It makes me more ambitious," says 30-year-old Baiju Prafulkumar Bhatt, cofounder of Robinhood, an investing application that recently raised $50 million.

Even if Robinhood did want to go that route, raising too much money can prove dangerous too for a young startup.

"It can be a double-edged sword," says Steve Schlafman, an investor with RRE Ventures who focuses on early stage companies. "Raising ahead of traction and at a lofty valuation puts more pressure on management to execute. If they don't hit or surpass expectations, the next round can be painful from a dilution perspective."

History repeats itself

Kaleil Isaza Tuzman was recently in an investor meeting with the CEO of a young startup who had assumed he would be able to raise more funding because, well, everyone else is succeeding at that. Instead, the CEO found himself struggling to pull together financing before his company would bleed through the last of its cash.

"That feels similar to 1999," says Tuzman, an investor best known for his own hubris and shortsightedness during the dot-com bubble of that year.

Tuzman, then in his 20s, raised tens of millions in equity and debt for his civic web service GovWorks only to burn through it fast. His startup took on more debt, but then the market turned. The saga was immortalized in Startup.com, the defining documentary of that era. "For us, the music stopped and we didn’t have a chair."

Fifteen years later, he can't help but notice the way some companies raise large sums of money and spend on "every conceivable" product development area to maximize their impact. It suggests a "dependence on there being a gravy train of capital," he says. "History shows that when it gets shut off, it gets shut off very quickly."

Schlafman, the RRE investor, now stresses that same point in conversations with startups in his portfolio. "I have these discussions with the founders all the time: make sure you are not getting too far ahead of your skis as it relates to burn rate and that we are investing in the right things," he says. "Thats the message right now."

It's advice that Conrad from Zenefits is well aware of — but doesn't always follow.

"With Zenefits, we’ve probably burned a little bit more because it seemed at certain critical junctures where we would have had to decide to conserve capital or keep growing, we decided on the latter because there was so much investor interest that it seemed like we were going to be able to raise money," Conrad says. "That's obviously a risky decision to make."

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